patrick.net

The problem is that people can't explain why new homes sales

- have missed new home sales estimate 3 years in a row
- why new home sales are still at recessionary levels
- why new home sales prices adjusting to inflation are at all time highs

It's simple, 4 decades of building bigger and bigger homes in a 4 decade push of having smaller and smaller family sizes has created a permanent inflationary factor, that the builders them selves don't want to fix, I don't blame them they can't make $$$ on smaller homes

indigenous says

Could there be over-investment in these bigger houses?

Not likely. There is an underinvestment of all home types. Since the crash the population has increased by more than 20 million people, but home building is at dangerously low levels. Home prices must, and will increase.

YesYNot says

What would bring down the price of housing?

For existing homes, you need a recession, a recession will create more supply and has been the only factor that has created 6 months plus annual months, in this case for housing, 2006, the first head year of the housing bust

YesYNot says

Deporting 11 million illegals. They don't live in caves.

Not a big factor for existing homes market

I have created a better demand curve thesis for years 2020-2024 and in doing that I have check and counter my own thesis as well and what might impact that demand curve.

So, the housing inflation thesis is the only thing I can see impacting demand at that point because the human supply factor will be a lot higher then

Logan Mohtashami says

housing inflation thesis is the only thing I can see impacting demand at that point because the human supply factor will be a lot higher then

What about how technology could influence the housing industry, or the demand moving because of telecommuting?

How does a recession create more supply? 11 million are 0.3% of the population. Does a recession cause so much doubling up that it has a bigger impact than 0.3% give or take reduction in demand?

Logan Mohtashami says

YesYNot says

Deporting 11 million illegals. They don't live in caves.

Not a big factor for existing homes market

That would only leave about 1 million houses empty.

YesYNot says

How does a recession create more supply?

In housing now, a job loss recession would create a distress property, post 1996 since the inflation price gap deviated from historical trends, we have never had 6 months annual month of supply for existing homes outside 2006-2011. Housing bust and recession combined.

So, it's very long in this cycle now and still no 6 months of supply because we are not a natural 6 month inventory country for existing homes, new homes on the other hand I believe high water mark in this cycle has been 5.8 months, but the builders have more control over that process

zzyzzx says

That would only leave about 1 million houses empty.

That would assume illegal immigrants own homes

YesYNot says

. Does a recession cause so much doubling up that it has a bigger impact than 0.3% give or take reduction in demand?

Here is the inventory chain as you can see you can see the housing bust factor in the data.

However, we no longer have exotic loans in the system, these home owners will only sell if they're moving up or down... a job loss recession would create more supply but nothing like we saw in the bubble bust

"high employment"

I think this is largely a fiction, considering we have the lowest participation rate of employment since the 70's, I've seen something like 62.7%. These numbers are highly fudged as people who are no longer looking for work are not counted among the unemployed. Also, many jobs today are not the secure ones of many years ago--many are temp situations that don't lend themselves to a feeling of security on the part of the "employed". In conversations during the past couple of weeks friends have told me of young and even not so young relatives who have had umpteen jobs in five years or so, not exactly conducive to long-term planning.

Logan Mohtashami says

That would assume illegal immigrants own homes

I know they rent, but that's still potentially about a million empty rental homes.

P N Dr Lo R says

"high employment"

I think this is largely a fiction. These numbers are highly fudged as people who are no longer looking for work are not counted among the unemployed.

154 million Americans working, 43 year low in unemployment claims and the 2 months ago we had the highest job opening print ever recorded in human history at 5,845,000

After 8 years in this cycle if you're not working like most Americans, it's you... certainly not anyone who is looking to buy a home

zzyzzx says

I know they rent, but that's still potentially about a million empty rental homes.

Not sure that thesis works with what I am talking about. roughly 11-12 million renting people in the start of the century and now there is almost 17-18 million now.

I don't see deportation being a housing supply factor for ownership

Logan Mohtashami says

We had the biggest build of new homes 2002-2006 and it did nothing for housing affordability what so ever

This is simply not true. Home prices collapsed below 100K in states with large overbuilding, like Florida.
The building was not evenly spread. There was never overbuilding in California.
Now the population caught up with the oversupply of 2006.

Logan Mohtashami says

If you want to take the King... Toll Brothers is between 850K-900K for a median price home

3-2 sell for $1.5 in many places in California.
This clearly shows housing demand result in prices being bid up way higher than costs.

Look at this way

In a few years demographics for ownership will be positive, this is the light cycle from 2008-2019

The question is, do the builders keep on building bigger and bigger homes into that strong demographics where median sq ft. is then 2,700- 3,100

Or do they start pushing and I mean really pushing smaller sized homes for the young demographic that will be more of a proper age

Ironman says

So, why don't you move to Florida so you can buy your own house?

Maybe I don't want to be underwater in 15yrs?

You're going to have a lot renters right in that sweet age spot ages 28-42 come years 2020-2024 we have been renting for some time

Logan Mohtashami says

The question is, do the builders keep on building bigger and bigger homes

As long as the market is supply constrained, they should build only big homes. Lots of them. Housing is fungible and rich people buying new houses are not competing for 1600 sqft 3-2s. So it benefits everyone.

Logan Mohtashami says

Or do they start pushing and I mean really pushing smaller sized homes for the young demographic that will be more of a proper age

There is a lot of demand for cheaper housing, and if they can make money on basic smaller houses sold cheaper, why would no one address this demand. The real question remains, why in a capitalist system, is an entire industry not answering a demand, and this year after year for 3, 5, 8 yrs?

Logan Mohtashami says

You're going to have a lot renters right in that sweet age spot ages 28-42 come years 2020-2024 we have been renting for some time

Considering the price of renting, these people won't be able to save much for a down payment. This just postpones the current problem.

You can't extort an entire generation by refusing to build. The current system is a con job based on nothing.

Heraclitusstudent says

Considering the price of renting, these people won't be able to save much for a down payment.

This issue still doesn't get enough attention

LTI factor of rent inflation in areas where you have a high population density factor

(Tiffany Effect)

Logan Mohtashami says

This issue still doesn't get enough attention

LTI factor of rent inflation in areas where you have a high population density factor

Same cause. Not enough supply.

Heraclitusstudent says

Same cause. Not enough supply.

Rate of rental growth supply has peaked

We have permanent inflation on both fronts and all that can be done is to cool it down, ( Outside) a recession, this inflation will stick...

Until the builders make a push to build smaller homes national on a long term basis .. not just a few builders here or there

Logan Mohtashami says

154 million Americans working, 43 year low in unemployment claims

That may be, but are they working in jobs in which they'll still be employed five or ten years from now unless they want to quit, which have great benefits and can ensure 40 hours a week and two weeks of vacation after the first year?

P N Dr Lo R says

That may be, but are they working in jobs in which they'll still be employed five or ten years from now

Not only yes, but in 5-10 years you will see some more older Americans leave the work force as they simply become to old to work

Ironman says

Out of 250 Million available..

This is probably the worst false narrative and fallacy of logic thesis on economics in general I have ever seen in my life

We have the highest job openings ever record in human history and we have never had more than 15 million people fired from the great recession. We are showing a demand labor curve of over 100 million people and yet still

The Anti American Bears, who clearly never took a course in economics or finished college even are trying to make a thesis that 98 million Americans lost their jobs in a 19 month period.

Its remarkable not even the Russians or Islamic terrorist are this naive ... ;-)

Ironman says

Sure it is....

From the Census:

anyone who took a course in economics would know what this means

This is the Anti American Zero Hedge model which is directly focused toward the Anti American bears and those who never finished college or high school.

This doesn't work on the educated class

You can't have 250 million people out of work if only 15 million Americans lost their jobs and more jobs have been recovered. Under no metric possible can 250 Million Americans have lost their jobs

Unemployment claims are at 43 year lows, job openings are at world historical highs

There is nothing even in the charts going back to 1939 that would show 250 Million Americans lost their jobs, we never even had 250 Million Americans working ever

Ironman says

Duh...

See, even Zero Hedge Readers, Pro Russian Anti America, Islamic terrorist have limits on how much B.S. they can push

154 million working

43 year low in unemployment claims

Highest Job openings ever recorded in world history

No, 24-98 million Americans out of work.. they were never working in the first place

You're missing 2.7 Million Prime age labor force Americans, a lot of them are women who said they don't want to work full time jobs because of kids.

They ever created a prime age labor force age group so people wouldn't get confused

Respectfully, I think you are looking at national data when real estate is always local. Also, the correlation between cost and value is always imperfect. Housing in flyover states might be getting bigger, which might cost more to build, but making a Mississippi house bigger does not make it more valuable to someone who wants to live in the SFBA.

Recessions don't build supply. They can reduce demand, and they can free up some existing local supply as people move away, but ultimately the only way to increase supply is to build at rates above the rate of depreciation/replacement.

Some cities have zoning and planning rules that have cannibalized supply. For example, in Manhattan, smaller older units get replaced by premium luxury buildings designed by celebrity architects and featuring Italian marble tubs to attract the TV cameras of Robin Leach. In that scenario, they are replacing more units with fewer units, reducing supply rather than increasing it, due to zoning and planning.

Cost does not determine value. If somebody tells me that an analog CRT television was handmade, with each winding carefully done by artisans trained in Bhutan, that doesn't make me want to pay more for it than I would pay for a better TV made at a fraction of the cost. Likewise houses: a palatial mansion might cost more to build than a tiny apartment, but if the mansion stands in northern Kamchatka, I'm not buying.

curious2 says

Recessions don't build supply

1996-2016

The only time we had over 6 months supply in both new and existing homes together was due to the housing bust and the recession, outside of that we have been under 6 months. New homes can be controlled to a degree by the builders, but the existing home market is simply too big

Housing bust really started late 2005 with the first waive of sub prime delinquencies and the rest followed

But we had a major build up in home construction from 2002-2006... none of that made housing more affordable in either both new and existing homes

Since 2012... existing home inventory has never breached over 6 months annual months inventory and it has never been close either

As I wrote above, recessions "can free up some existing local supply as people move away," and your charts add a good point that recessions can have the same effect nationally if people shed second homes or downsize and double up. The OP headline is, however, about building. Building more units than depreciation/replacement would result in more supply and thus lower prices, at least if you can build them in the places where there is demand. Cities are becoming less affordable because they restrict the number of new units below the level of supply that would make prices affordable. Flyover areas might be affordable to retired people, but not to people who need to work where their employers are.

Logan Mohtashami says

we had a major build up in home construction from 2002-2006... none of that made housing more affordable

I think that resulted from excess demand created by the subprime mortgage bubble. When that bubble burst, the various bailouts (by whatever alphabet soup acronym, TARP+ZIRP+QE+HAMP) propped up prices that would otherwise have become affordable.

curious2 says

I think that resulted from excess demand created by the subprime mortgage bubble

Sub prime buyers weren't really buyers of new homes, they were more existing homes. However, exotic A paper loans did boost new home purchases as they were very expensive back then.

A good example was the 80/10/10 option arm stated income loan up to 1.5 and 2 million here in CA

At 2003, thats when I saw personally more and more exotic loans added into the supply chain of loans because that kept the fuel burning and then you had the mass cash out boom but you saw a big expansion on home building from 2002-2006

That didn't necessarily impact existing homes prices but again the supply of homes were bigger and bigger thus leaving the market place to the existing inventory with bigger homes to work from

Check out this interactive graph on a regular basis:

https://fred.stlouisfed.org/series/HOSSUPUSM673N

It really went hay wire in 2000.. the the trend to build bigger homes started decades ago...

Strategist says

Check out this interactive graph on a regular basis:

https://fred.stlouisfed.org/series/HOSSUPUSM673N

Exactly what I am talking about... annual months of inventory 6 months has never happened in America post 1996 outside a recession it won't happen next year either

The ability to move up in American and release 1st time home supply is limited as you're chasing a higher velocity priced home

That is where I came up with that conservative model of needing 28%-33% equity to sell and move up based on the affordable index

Clap clap

I think you guys are now getting what I am saying here